The Conference Board Composite Indices are released periodically on a monthly basis by the Conference Board. The non-profit organization has been existence for the past 90 years and their indices have greatly valued by businesspersons around the globe for their relevance in presenting and predicting market dynamics. The data used for computing the indices for February is collected up to 12.00pm of 18th March 2009. Composite Indices are computed via five steps which include: monthly data are calculated for every component of the Composite index, any changes are incorporated to compute growth rates, monthly volatilities are ascertained, indices are calculated using symmetric change formula and rebased to an average of 100 using 2004 as the base year (Conference Board, 2009).
Review of the Composite Indices
1. The Conference Board Leading Economic Index (LEI)
The LEI decreased by 0.4% this February after having dropped by 0.1 % in both January 2009 and December 2008. The leading economic index for February is 98.5(2004=100) against 99.5(2004=100) for January 2009 a one point decline over the period. From August 2008 to February 2009, the LEI dropped by 2.1% compared to a 1.6% decline during the six months to August 2008. This declining trend began way back in July 2007 few months before the beginning of recession.
The Conference Board Coincident Economic Index (CEI)
The CEI index fell further this February by 0.4% after declining by 0.6% and 0.7 % in January 2009 and December 2008 respectively. The February Coincidence Economic Index stood at 102.5(2004=100) down from 103.3(2004=100) in January recording a 0.8 decline. The CEI index had declined by 0.5 % both in November and December 2008 and dropped by 2.7% in the six months to January making the biggest since 1975. This negative recording was necessitated by the decreasing industrial production and the falling unemployment across all sectors in the US economy. The CEI index has been falling from November 2007 but accelerated in the past few months.
The Conference Board Lagging Economic Index(LAG)
The LAG further declined by 0.4% this February after falling by 0.3% and 0.1% in January 2009 and December 2008 respectively. The Lagging Economic Index also decreased from 113.9(2004=100) in January 2009 by 0.4 points to 113.5 (2004=100) this February. The LAG index had dropped by 0.3 % and 0.1% in January 2009 and December 2008 respectively (Conference Board, 2009).
Analysis of the US Composite Indices Components
1. Analysis of Leading Economic Index (LEI) components
Six out of ten components that make up the Leading Economic Index (LEI) increased in the month of February according to the Conference Board release on March 19th 2009. The positive contributors in decreasing order are: the vendor performance measured by an index of supplier deliveries remained at 0.0677, similarly with building permits measured by new units of private housing stood at 0.0270, money supply measured by M2 at 0.3580 , manufactures’ new orders stood at 0.0774 for consumer goods and materials while that for non-defense capital goods is 0.0180. Whereas the four negative contributors in decreasing order are: the average weekly initial claims for unemployment insurance for February is 0.0307, the stock prices which stood measured by 500 common stocks stood at 0.0390, consumer expectations index is 0.0282 and lastly the average weekly manufacturing hours stood at 0.2549 (Conference Board, 2009)
2. Analysis of Coincident Economic Index (CEI) Components
The CEI index is measured by four components. Two of these components contributed marginally to index namely; the personal income less transfer payments which stood at 0.1873 and the manufacturing and trade sales was 0.1191 for February and March. The negative contributors for February are the employees on non-agricultural payrolls and industrial production which were 0.5439 and 0.1497 respectively (Conference Board, 2009).
Analysis of Lagging Economic Index Components(LAGG)
The Lagging Economic Index is measured by seven components and for February 2009 the index had only one positive contributor, the consumer installment credit to personal income ratio which stood at 0.1872. Negative contributor’s value for commercial and industrial loans was 0.1127; labor cost per unit of output was 0.0608 while the Consumer Price Index for services was 0.1959. The following components remained the same for February: average prime rate, manufacturing and trade inventories to sales ratio and the average duration of unemployment stood at 0.2825, 0.1238 and 0.0371 respectively (Conference Board, 2009).
Though the LEI recorded a decline this February, a closer look at the component reveals that they more or less balanced out. The market seems to be volatile enough as the credit crunch bites the economy. Going by this index, we are likely to continue in the recession in the next financial year a time when prospects for expedited economic growth may not be forthcoming perhaps until 2010.
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